Of falling property prices, cooling measures and expectations

Just because property prices are on a downtrend does not mean that cooling measures should be lifted. In Singapore, the private home prices are extending its fall for the 15th straight quarters. Two things to note. The government’s cooling measures are working well. Secondly, it has been gradual which is why the market has not collapsed suddenly. The full article talking about the falling private home prices and some comments from prominent figures in asia.nikkei.com here. As for the medium term, do note that the bids for lands released by the Urban Redevelopment Authority is very strongly supported. Some Malaysian developers are paying huge money to get their hands on one. This is the comment by Desmond Sim, head of CBRE Research for Singapore and South East Asia. “These indicators lend support to the view that the residential market has been approaching, or has reached the trough, in terms of prices,” (Is this the sign that prices are already at its bottom? Well, if it is, then the cooling measures can stay a bit longer.)

Anyway, just because property prices are nearing bottom does not mean that the cooling measures should be lifted. This is what the Monetary Authority of Singapore says in an article in channelnewsasia.com Its chief Ravi Menon shared that while the property market in Singapore has “substantially stabilised” over the last three years, but it is not time yet to ease the cooling measures. His next sentence is very true. I think this is what the government is looking for. He said, “Over the medium term, property prices are expected to be aligned with broader income trends in the economy.” He added, ““If property prices increase faster than nominal GDP growth on a sustained basis, buyers would end up taking on more leverage than they can reasonably repay out of their incomes.” (In effect what he is saying is that affordability is important. No point in prices falling but people’s incomes are still not high enough to afford them. So, if incomes could not rise fast enough, the home prices should not be rising too fast. Profoundly true) Here’s that full article in channelnewsasia.com

I think the government’s expectations all over the world is on ensuring its people have access to a home. It should also be for an orderly increase in property prices (it has to increase, else, all owners will suffer and no one would buy). Cooling measures are not meant to push prices down indefinitely. It is meant to ensure prices drop if it had risen way too high because the market does not always correct itself. Especially so when there are many speculative activities happening. Just look at the currency market and we can see fundamentals are not always that important. The expectations from buyers? Well, for those who needs a home, always aim at affordability. Waiting forever to buy is not an awesome strategy. The expectations from developers? Of course for some indicators that will help to lift sentiments and thus a bigger group of interested buyers for their homes. Happy following.